More on the flow of funds: debt and assets

Two more thoughts on the Fed's fourth quarter 2008 flow of funds accounts. Tangible assets are taking a hit, but equities really got slammed.

The chart illustrates the fourth quarter 2008 growth rate (not annualized) for different classes of household assets, tangible (real estate) and financial markets. Corporate equities and mutual fund shares were hit the hardest, -23.2% and -20.8%, respectively.

Possibly more disturbing is the massive hit to pension fund reserves, -12%. This would be particularly bad if (a) markets do not rebound, or (b) big companies go bankrupt, leaving a large pension liability to the U.S. taxpayer (This is a little dated, but Fidelity produced an interesting report on retirement contributions in 2008).

Government is levering up, while the private sector is trying to reduce debt burden.

I don't have a whole lot to say about this one. Wait a minute, of course I do! First, amid financial strain and overleverage in the private sector, the federal government is levering up. Its debt burden increased an annualized 37% in the fourth quarter, which is 30% above the average quarterly growth rate spanning 2001-2007.

The household sector saw the only reduction in debt burden for both consumer loans (auto loans, credit cards, student loans, etc.) -3.2%, and mortgages, -1.2%. This is a 180-degree U-turn from the 2001-2007 average consumer debt growth of +5% and mortgage debt growth of +11.45%.

Debt growth accelerated slightly in the domestic financial sector, up 0.4% to 7.2%, but still 2.5% shy of its 2001-2007 average.

Rebecca Wilder